Group 1 - Zoetis Inc. reported Q1 earnings that were not well received by the market, resulting in a stock drop of more than 5% on the day of the announcement [1] - Despite the initial drop, Zoetis Inc. managed to recover the entirety of the decline shortly thereafter [1] Group 2 - Best Anchor Stocks focuses on identifying high-quality companies that are currently experiencing challenging periods, presenting asymmetric investment opportunities [1] - The portfolio of Best Anchor Stocks has demonstrated a track record of revenue growth with below-average volatility since its inception in January 2022, outperforming the market [2]

Group 1 - Zoetis shares have underperformed over the past year, losing approximately 8% of their value [1] - Since reaching a peak in late 2024, Zoetis shares have declined by about 20% [1] - This decline adds to a trend of long-term underperformance for the company [1]

Financial Performance - Total revenue for the three months ended March 31, 2025, was $2,220 million, a 1% increase compared to $2,190 million in the same period of 2024, with operational revenue growth of 5%[100] - Net income attributable to Zoetis for the three months ended March 31, 2025, was $631 million, reflecting a 5% increase from $599 million in the same period of 2024[112] - Adjusted net income for the same period was $662 million, up 4% from $634 million in 2024[100] - U.S. segment revenue increased by $20 million, or 2%, to $1,183 million in Q1 2025, driven by an increase in companion animal products[133] - International segment revenue was relatively flat, but operational revenue increased by $73 million, or 7%, in Q1 2025, primarily due to growth in companion animal products[135] - Total operating segments revenue increased by $29 million, or 1%, to $2,220 million in Q1 2025 compared to $2,190 million in Q1 2024[130] - Gross profit for the U.S. segment increased by $38 million, or 4%, to $984 million in Q1 2025, with a gross margin of 83.2%[132] - International segment earnings increased by $16 million, or 3%, to $551 million in Q1 2025, with operational earnings growth of $35 million, or 7%[137] - Diluted earnings per share (EPS) for Q1 2025 was $1.48, an increase of 7% compared to $1.38 in Q1 2024[154] Expenses and Costs - Cost of sales decreased to 28.0% of revenue in Q1 2025 from 29.4% in Q1 2024, primarily due to price growth of approximately 4% and volume growth from key franchises[115] - Selling, general and administrative expenses increased by $16 million, or 3%, to $563 million in Q1 2025 compared to $547 million in Q1 2024[118] - Research and development expenses decreased by $5 million, or 3%, to $157 million in Q1 2025, attributed to timing of spend related to projects[119] - Amortization of intangible assets decreased to $32 million in Q1 2025 from $37 million in Q1 2024, primarily due to assets becoming fully amortized[120] - Interest expense, net of capitalized interest, decreased by $4 million, or 7%, to $54 million in Q1 2025 compared to $58 million in Q1 2024[126] - Provision for taxes on income increased by $21 million, or 14%, to $179 million in Q1 2025, with an effective tax rate of 22.1% compared to 19.8% in Q1 2024[128][129] - Corporate expenses decreased by $17 million, or 6%, in Q1 2025, primarily due to favorable foreign exchange and lower compensation-related costs[140] Cash Flow and Liquidity - Net cash provided by operating activities decreased to $587 million in Q1 2025 from $595 million in Q1 2024, primarily due to timing of receipts and payments[164] - Net cash used in investing activities increased to $175 million in Q1 2025 from $131 million in Q1 2024, mainly due to capital expenditures[165] - Net cash used in financing activities rose to $677 million in Q1 2025 from $524 million in Q1 2024, driven by treasury share purchases and dividend payments[166] - As of March 31, 2025, cash and cash equivalents totaled $1,721 million, down from $1,987 million on December 31, 2024, indicating a decrease of approximately 13.4%[168] - The current ratio of current assets to current liabilities was 1.74:1 as of March 31, 2025, slightly down from 1.75:1 on December 31, 2024[168] - The company anticipates that global economic conditions may impact liquidity, but it believes it can meet liquidity needs for the foreseeable future due to operating cash flows and access to capital markets[173] Debt and Credit Facilities - The company has a multi-year $1.0 billion senior unsecured revolving credit facility, which can be increased to $1.5 billion under certain conditions, expiring in December 2027[169] - As of March 31, 2025, the company had access to $51 million of additional lines of credit, with no borrowings outstanding related to these facilities[171] - The company’s outstanding debt securities include $750 million in 2015 Senior Notes due 2025 with a 4.500% interest rate and $600 million in 2022 Senior Notes due 2025 with a 5.400% interest rate[176] - Moody's assigned a long-term debt rating of A3 with a stable outlook, while S&P assigned a rating of BBB+ with a stable outlook[179] - The company maintains compliance with all financial covenants as of March 31, 2025, with no amounts drawn under the credit facility[170] Share Repurchase and Other Activities - The company repurchased 2.7 million shares for $443 million during the first three months of 2025, with $5.2 billion remaining under the authorized share repurchase program[180] - Other business activities net loss decreased by $3 million in Q1 2025, reflecting a decrease in R&D costs[139] - Total purchase accounting adjustments for Q1 2025 were $31 million, down from $35 million in Q1 2024[156] - Interest expense for Q1 2025 was $54 million, a decrease from $58 million in Q1 2024[155] - The company regularly monitors accounts receivable, which were collected within the standard range of 45 to 75 days, with accounts receivable net totaling $1,361 million as of March 31, 2025[168] Market Presence - Zoetis operates in approximately 45 countries and is a market leader in nearly all major regions, with a diversified product portfolio of around 300 product lines[97]

Core Viewpoint - Zoetis, Inc. reported strong first-quarter 2025 results with adjusted earnings of $1.48 per share, exceeding expectations and showing year-over-year growth [1][2] Financial Performance - Total revenues increased by 1% year over year to $2.22 billion, surpassing the Zacks Consensus Estimate of $2.19 billion [2] - U.S. segment revenues rose by 2% to $1.183 billion, although it fell short of the consensus estimate [3] - International segment revenues remained flat year over year but increased by 7% on an operational basis to $1.008 billion, beating estimates [7] Product Performance - Sales of companion animal products in the U.S. surged by 8% to $973 million, driven by monoclonal antibody products and dermatology portfolio [4] - Livestock product sales in the U.S. declined by 21% to $210 million, primarily due to the divestiture of the medicated feed additive portfolio [5] - Ex-U.S. sales of companion animal products rose by 4% to $573 million, with significant contributions from OA pain products and dermatology products [8] Guidance Update - Zoetis raised its 2025 guidance for adjusted earnings to a range of $6.20-$6.30 per share and revenue projection to $9.425 billion to $9.575 billion [13]

Company Performance - Zoetis reported quarterly earnings of $1.48 per share, exceeding the Zacks Consensus Estimate of $1.40 per share, and showing an increase from $1.38 per share a year ago, representing an earnings surprise of 5.71% [1] - The company posted revenues of $2.22 billion for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 1.35% and showing growth from $2.19 billion year-over-year [2] - Over the last four quarters, Zoetis has consistently surpassed consensus EPS and revenue estimates [2] Stock Outlook - The immediate price movement of Zoetis shares will largely depend on management's commentary during the earnings call, with shares down about 3% year-to-date compared to the S&P 500's decline of 3.9% [3] - The current consensus EPS estimate for the upcoming quarter is $1.59 on revenues of $2.38 billion, and for the current fiscal year, it is $6.07 on revenues of $9.31 billion [7] Industry Context - The Medical - Drugs industry, to which Zoetis belongs, is currently ranked in the top 22% of over 250 Zacks industries, indicating a favorable outlook compared to the bottom 50% [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact Zoetis's stock performance [5]

Financial Data and Key Metrics Changes - The company reported $2.2 billion in revenue, growing 1% on a reported basis and 9% on an organic operational basis, driven by 4% price and 5% volume [22][24][36] - Adjusted net income was $662 million, growing 4% on a reported basis and 6% on an organic operational basis [22][36] - Adjusted diluted EPS grew 4% operationally and 8% on an organic operational basis, reflecting a lower share count due to ongoing share buybacks [33][36] Business Line Data and Key Metrics Changes - The companion animal portfolio generated $1.5 billion in revenue, growing 9% operationally, with significant contributions from the Simparica franchise, key dermatology, and OA pain mAbs [22][23][24] - Livestock revenue declined 2% on an organic operational basis, primarily due to aggressive price competition [24][27] - The U.S. segment grew 2% on a reported basis and 6% on an organic operational basis, with companion animal growing 8% and livestock declining [24][27] Market Data and Key Metrics Changes - The international segment's revenue was flat on a reported basis but grew 11% on an organic operational basis, with companion animal growing 10% and livestock growing 12% [27][31] - The international Simparica franchise grew 23% operationally, driven by strong market share gains in Latin America and Eastern Europe [28][31] - The livestock segment's growth was supported by higher prices and volume growth in poultry vaccines across Asia, the Middle East, and Latin America [31] Company Strategy and Development Direction - The company maintains a full-year organic operational revenue guidance range of 6% to 8%, reflecting confidence in its diversified portfolio [19][36] - The focus remains on executing a multi-levered strategy, emphasizing innovation, operational excellence, and strategic capital allocation [10][21] - The company is investing in medical education and direct-to-consumer campaigns to drive awareness and adoption of its products, particularly in the OA pain market [15][17][61] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the animal health industry despite macroeconomic uncertainties, highlighting the essential nature of their business [9][19] - The company is adapting to challenges while seizing opportunities, maintaining a strong balance sheet and operational excellence [10][21] - Future guidance reflects potential impacts from enacted tariffs, with a focus on navigating the dynamic environment [36][37] Other Important Information - The adjusted gross margin was 72.1%, growing 140 basis points on a reported basis, with foreign exchange having a favorable impact [32] - The company is actively monitoring the FDA and USDA for any potential delays or backlogs in product approvals [83][84] - Retail sales grew 40% in the quarter, with alternative channels continuing to gain traction [86][88] Q&A Session Summary Question: Insights on Librela and Tariffs - Management reported 15% organic operating growth for Librela globally, with strong vet satisfaction and ongoing education efforts [41][42] - The tariff impact embedded in guidance primarily relates to imports from China, with a net headwind of $20 million expected [44][72] Question: Competitive Landscape - The company noted that competition in dermatology and parasiticides remains strong, with a focus on maintaining market share through innovation and first-mover advantages [49][53] - Despite new entrants, the company continues to see growth in its key franchises, with double-digit growth expected [58][60] Question: Consumer Sentiment and Compliance - Management acknowledged a more measured approach to managing chronic conditions among consumers, but remains confident in the durability of the animal health industry [94] - The company expects price and volume mix to remain consistent with previous expectations, with a focus on maintaining growth across its portfolio [96]

Financial Data and Key Metrics Changes - The company reported $2.2 billion in revenue for Q1 2025, growing 1% on a reported basis and 9% on an organic operational basis, driven by 4% price and 5% volume growth [22][19] - Adjusted net income was $662 million, growing 4% on a reported basis and 6% on an organic operational basis [22][19] - Adjusted gross margin increased to 72.1%, growing 140 basis points on a reported basis [33] Business Line Data and Key Metrics Changes - The companion animal portfolio generated $1.5 billion in revenue, growing 9% operationally [22] - The Simparica franchise contributed $367 million, growing 19%, while key dermatology posted $387 million, growing 10% [22] - Livestock revenue declined 2% on an organic operational basis, primarily due to aggressive price competition [28] Market Data and Key Metrics Changes - The U.S. segment grew 2% on a reported basis and 6% on an organic operational basis, with companion animal growing 8% and livestock declining 2% [24] - International revenue was flat on a reported basis but grew 11% on an organic operational basis, with companion animal growing 10% and livestock growing 12% [28] Company Strategy and Development Direction - The company is focused on executing its strategy with discipline, supported by a strong balance sheet and operational excellence [9] - The company aims to maintain its full-year organic operational revenue guidance range of 6% to 8% [19] - The company is investing in medical education and direct-to-consumer campaigns to drive awareness and adoption of its products [16][62] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the animal health industry despite macroeconomic uncertainties [19] - The company is maintaining its full-year adjusted net income guidance of $2.775 billion to $2.825 billion, reflecting operational growth of 5% to 7% [38] - Management highlighted the importance of innovation and customer engagement in navigating the current environment [20] Other Important Information - The company received conditional licensure from the USDA for an avian influenza vaccine for chickens [17] - The company is actively monitoring the impact of tariffs and has reflected the net impact of current tariffs in its guidance [46][73] Q&A Session Summary Question: What is the response to the Librela label change and the tariff impacts? - Management reported a 15% organic operating growth in Librela globally, with strong vet satisfaction and ongoing education efforts [42][44] - The tariff impact embedded in guidance primarily relates to imports from China and is expected to be around $20 million [46][73] Question: What competitive pressures are being faced in the market? - Management acknowledged competitive entrants but emphasized the company's first-mover advantage and continued growth in key franchises [51][54] Question: How is the company addressing consumer sentiment and compliance? - Management noted a more measured approach to managing chronic conditions but remains confident in the durability of the animal health industry [94] Question: What are the expectations for price and volume for the rest of the year? - The company expects price to be above historical levels but below those of the previous years, with volume growth remaining strong [97]

May 6, 2025 First Quarter 2025 Financial Results 2 FIRST QUARTER FINANCIAL RESULTS Presenters Forward-Looking Statements This presentation contains forward-looking statements, which reflect the current views of Zoetis with respect to: business plans or prospects, future operating or financial performance; future guidance, future operating models, R&D costs; timing and likelihood of success; expectations regarding products, product approvals or products under development and expected timing of product launch ...

Financial Performance - Zoetis reported revenue of $2.2 billion for Q1 2025, a 1% increase compared to Q1 2024, with 9% organic operational growth [3]. - Net income for Q1 2025 was $631 million, or $1.41 per diluted share, reflecting increases of 5% and 8% respectively on a reported basis [4]. - Adjusted net income for Q1 2025 was $662 million, or $1.48 per diluted share, marking a 4% increase on a reported basis and 6% on an organic operational basis [4]. - Total revenue for the three months ended March 31, 2025, was $2,220 million, a 1% increase compared to $2,190 million in 2024 [36]. - The company reported total earnings of $810 million, an 8% increase from $747 million in the prior year [42]. Segment Performance - The U.S. segment revenue was $1.2 billion, up 2% year-over-year, with companion animal product sales increasing by 8% [6]. - The International segment revenue was $1.0 billion, flat on a reported basis but up 11% on an organic operational basis [6]. - Companion Animal revenue increased by 7% to $1,546 million, while Livestock revenue decreased by 10% to $645 million [36]. - U.S. total revenue rose by 2% to $1,183 million, with Companion Animal revenue up 8% and Livestock revenue down 21% [36]. - International earnings increased by 3% to $551 million, with a gross margin of 70.0% [42]. Guidance and Projections - Zoetis updated its full year 2025 revenue guidance to between $9.425 billion and $9.575 billion, maintaining organic operational growth guidance of 6% to 8% [4]. - Adjusted diluted EPS guidance for 2025 is updated to between $6.20 and $6.30, reflecting the impact of foreign exchange and enacted tariffs [4]. - Adjusted net income guidance for 2025 is updated to between $2.775 billion and $2.825 billion, reflecting organic operational growth of 5% to 7% [10]. - The company expects full-year 2025 revenue guidance of $9,425 to $9,575 million, an increase from the prior guidance of $9,225 to $9,375 million [31]. - Adjusted net income for 2025 is projected to be between $2,775 to $2,825 million, up from the previous estimate of $2,700 to $2,750 million [31]. Cost and Expenses - Adjusted cost of sales decreased by 3% to $620 million in Q1 2025, compared to $642 million in Q1 2024, with adjusted cost of sales as a percentage of revenue at 27.9% [28]. - The cost of sales in the U.S. decreased by 8% to $199 million, contributing to improved gross profit [42]. - Adjusted SG&A expenses for 2025 are projected to be between $2,340 to $2,390 million, an increase from the previous range of $2,300 to $2,350 million [31]. - Research and development expenses for 2025 are expected to be between $690 to $700 million, up from the prior estimate of $680 to $690 million [31]. Product Development and Approvals - The company received new product approvals, including Simparica Trio for flea tapeworm prevention in the U.S. and additional claims for Revolution Plus in the U.K. [7]. - Livestock product sales declined 21% in Q1 2025, primarily due to the divestiture of the medicated feed additive product portfolio [6]. - The company experienced a 45% increase in revenue from the Human Health segment, rising to $29 million [36]. Tax and Significant Items - The effective tax rate on adjusted income is anticipated to be approximately 21% for 2025, unchanged from previous guidance [31]. - Certain significant items and acquisition-related costs for 2025 are estimated at approximately $45 million, up from the previous estimate of $30 million [31].

Group 1 - The article initiates coverage on Zoetis (ZTS) with a Strong Buy rating and a price target of $219.26, highlighting its position as a global leader in animal health therapeutics, diagnostics, and vaccines for both companion and livestock species [1] - The Strong Buy case is supported by Moretus Research's structured approach to equity research, focusing on identifying companies with durable business models and mispriced cash flow potential [1] - Moretus Research emphasizes a disciplined analysis that combines fundamental research with a judgment-driven process, aiming to provide actionable insights and a strong filter for relevant information in equity analysis [1] Group 2 - The research methodology prioritizes underappreciated companies that are undergoing structural changes or temporary dislocations, which can lead to asymmetric returns through dispassionate analysis [1] - Valuation techniques are based on sector-relevant multiples tailored to each company's business model and capital structure, emphasizing comparability and simplicity [1] - Moretus Research aims to elevate the standard for independent investment research by delivering professional-grade insights and actionable valuations [1]